A rally in the big miners was not enough to buoy the local stockmarket as local economic indicators indicated consumer sentiment is declining while housing finance trends are flat. Shares dragged lower with the biggest banks and retailers leading the losses.

The benchmark S&P/ASX 200 Index lost 29.6 points, or 0.6 per cent, on Wednesday to 5384.2, while the broader All Ordinaries Index shed 0.5 per cent to 5400.5. Local shares nose-dived at the open following a negative lead from offshore.

The major banks led the losses and an ABS report showed finance approvals for new dwelling held steady at around 27, 000 in January, falling shy of consensus expectations for a 0.5 per cent rise. The flat January reading followed a 1.9 per cent decline in December.

Investor sentiment took another hit from the news consumer confidence fell to a ten-month low in March. The Westpac consumer sentiment index fell 0.7 per cent this month. It was the third consecutive month the reading of consumer optimism declined and showed the post-election bounce in confidence has mostly faded.

Retail was the worst-performing sector, down 1.4 per cent. Food and liquor giant Woolworths fell 0.5 per cent to $36.45, while rival Wesfarmers, owner of Coles, lost 0.8 per cent to $43.11. Telstra Corporation was unchanged at $5.08.

Mining was the best-performing sector, up 0.3 per cent, as the biggest producers recovered despite a 2.6 per cent plunge in the copper price overnight.

Iron ore, meanwhile, added 0.2 per cent to $US104.90 a tonne, off an 8.3 per cent fall to an eight month low at the start of the week.

One of the world’s most respected investors has raised the alarm over a looming asset price bubble, calling out “nosebleed valuations” in technology shares like Netflix and Tesla Motors and warning of the potential for a brutal correction across financial markets.

Seth Klarman, the publicity-shy head of the $US27bn Baupost Group whose investment opinions have attracted almost a cult-like following, said that investors were underplaying risk and were not prepared for an end to central banks reversing a five-year experiment in ultra-loose money.

While noting that he could not predict exactly when a significant market correction would occur, Mr Klarman wrote in a private letter to clients: “When the markets reverse, everything investors thought they knew will be turned upside down and inside out. ‘Buy the dips’ will be replaced with ‘what was I thinking?’

“Anyone who is poorly positioned and ill-prepared will find there’s a long way to fall. Few, if any, will escape unscathed.”

“Any year in which the S&P 500 jumps 32 per cent and the Nasdaq 40 per cent while corporate earnings barely increase should be a cause for concern, not for further exuberance,” Mr Klarman wrote.

“On almost any metric, the US equity market is historically quite expensive. A sceptic would have to be blind not to see bubbles inflatingin junk bond issuance, credit quality, and yields, not to mention the nosebleed stock market valuations of fashionable companies like Netflix and Tesla Motors,” he wrote.

Toyotahas agreed to increase base wages in Japan for the first time since 2008 as the nation’s largest carmaker heads for record profits.

The average Toyota Motor Workers’ Union member will earn 2,700 yen ($29) more in base pay per month, Japan’s largest company said today. Toyota also will pay an average bonus of 2.44 million yen ($26,000), the equivalent of 6.8 months of salary and the most in six years.

While a weaker yen has helped Toyota forecast a record 1.9 trillion yen profit for the year ending March 31, the raise is smaller than the union requested. Japan’s looming April sales-tax increase, its first in 17 years, will pose a challenge for domestic demand at companies Prime Minister Shinzo Abe has pressed to increase pay for workers.

“If the Japanese economy was more likely to continue to grow for another 12 months, we would see much more robust growth in wages,” Takuji Okubo, chief economist at Japan Macro Advisors in Tokyo.

Joe Hockey's constant negativity and dire warnings have scared them more than the Great Recession.

As the official commentary states, the overall consumer sentiment index this month is down by 0.7 per cent to 99.5. On top of a 3 per cent fall in February, the proportion ofpessimists now exceeds that of optimists for the first time since last May.

By far the biggest movement over the past year has been in Labor voters – a collapse of 33.4 per cent down to 84.5 per cent. The 13.5 rise in coalition voters' outlook has not been enough to make up for the slide in recent months.

The government might not like the people who do not support it, but the economy needs them nonetheless – particularly when the opinion polls indicate their numbers are growing.

The psychologically-significant 0.85 handle remains an important technical level for the NZD/USD.

Expectations of rate hikes is driving the Kiwi dollar up and up.

2:22pm on 12 Mar 2014

It is hard to avoid the drama that is currently enveloping our national carrier.

Every day we seem to read a new headline about Qantas' latest cost-cutting exercise, or pleas for government assistance. So you may be surprised to learn about one Australian airline that is still profitable, and hasn't asked for a single bailout.

Regional Express, or REX, is Australia's largest independent regional airline, and rose from the ashes of the Ansett bankruptcy. REX operates a small fleet of just over 50 planes and focuses on regional markets that are poorly served (or often not served at all) by its larger competitors.

In the first half of fiscal 2014 REX made a profit before tax of $5 million. Over the same period Qantas reported an underlying pre-tax loss of $252 million and Virgin Australia made a pre-tax loss of $49.7 million. In other words, this tiny regional airline was not only profitable, it made over $300 million more profit in the first half than Qantas and Virgin Australia combined.

The federal government has issued a record $7 billion 15-year bond – the government’s largest ever syndicated debt raising.

The April 2026 bond issue surpassed November 2013’s record $5.9 billion, 20-year bond issue, putting the government ahead of its debt funding run rate while extending the maturity of its debt. The yield on the bond was 4.375 per cent.

The Australian Office of Financial Management, which manages the government’s debt issuance, has now raised $61.5 billion in the current financial year, just $13.5 billion shy of its stated $75 billion fund raising target.

The size of the deal could force the government to slow the pace of its bond auction, or could result in the government exceeding its $75 billion target.

Foreign investors were likely to be significant buyers, having increased their participation in long-term bond offers from about 20 per cent in 2011 to 60 per cent for the recent 2033 government bond.

International investors have bought $179 billion of the $210 billion of debt issued by the government between 2008 and 2013, according to UBS.

Regional markets are down across the board, with Japan the hardest hit:

Japan's Nikkei is 2.2 per cent lower

Hong Kong's Hang Seng is down 1.5 per cent

Shanghai's Composite Index is 0.6 lower

Taiwan's TAIEX has fallen 0.4 per cent

Korea's KOSPI is down 1.4 per cent

Singapore's FTSE Straits Times index is 0.6 per cent lower

Jakarta's benchmark index is down 0.3 per cent

Kiwi NZX 50 is down 0.2 per cent.

1:25pm on 12 Mar 2014

More on the misery index mentioned a couple of posts ago (and, yes, OK, Europe is not a country) - and just because we have the data and it's a shame to let a nice chart go to waste - here is Australia's annual CPI rate, unemployment, and the summation of them both - the misery index, which is at its highest since August 2011.

Australian economic "misery" is on the rise.

1:14pm on 12 Mar 2014

Atlas Iron managing director Ken Brinsden says the current volatility in the iron ore price will not deter expansion plans and the market should take a mid-term view of the commodity.

“There is a lot of day-to-day noise and headlines about China’s demise or extraordinary growth,” Mr Brinsden told The Australian Financial Review. “It fluctuates between two pretty amazing extremes. If you are prepared to look through the middle ground, it is still pretty healthy for natural resources.”

He joined other miners, including BHP Billiton and Rio Tinto, which sought to calm investors’ nerves this week after a 16 per cent fall in the iron ore price over the past three weeks.

BHP and Rio are sticking to forecasts that Chinese demand for steel would top 1 billion tonnes by 2025 or 2030, keeping demand strong for more than a decade.

Speaking at the Citi’s Australian Investment Conference in London, Mr Brinsden said the commodity on average sold for a strong price, which was delivering Atlas strong margins.

He said the market often overestimated the impact of a new wave of supply of iron ore because it did not hit the market as quickly as peopled expected. Analysts also often underestimated the impact of high-cost Chinese domestic production.

“People think about iron ore markets almost the wrong way around,” he said. “I think the market is grossly undersupplied and the way the Chinese get around that is plug in high-cost domestic production.”

Japanese Prime Minister Shinzo Abe looks set to drive an indicator of economic hardship to a 33-year high by increasing taxes and prices amid stagnant wages, reports Bloomberg.

That indicator is the “misery index”, which is a crude measure of economic hardship for a country’s citizens.

Multi-decade highs sounds bad for the Japanese, but at a reading of just five it hardly compares to the likes of Greece and Spain, where the index tops 25, on Bloomberg data.

In our list of 18 countries, Australia sits around the middle, with a reading of 8.7, between the UK and Canada – which sounds about right.

The concept behind the index is that the combination of a high rate of unemployment and increasing inflation is bad for the economy and society.

And – wouldn’t you know it – New Zealand scores better than us.

The misery index in 18 countries.

12:38pm on 12 Mar 2014

Morgan Stanley must be looking in wonder at the way the share price of Mermaid Marine is sinking.

The investment bank is underwriting Mermaid's share issue, which the company has proposed to part-fund a purchase of Singaporean assets.

Mermaid is going to shareholders with a 7-for-18 issue at $2.40 a share, which is to raise $217 million.

But with the shares trading this afternoon at $2.20, down 3.5 per cent, the underwriter is looking exposed.

12:24pm on 12 Mar 2014

NBN Co executive chairman Ziggy Switkowski says allowing TPG to compete with the national broadband network rollout could have an “economic impact of 5 per cent to 10 per cent”.

Mr Switkowski reiterated warnings at a Senate committee overseeing the rollout on Wednesday that allowing rival telecommunications companies to build their own fibre networks alongside the $41 billion NBN would have a “severe impact” on the government company’s ability to make money and pay back its debt.

The country’s fourth biggest telco revealed last year that it planned to connect fibre cabling to the basements of apartment buildings in capital cities, connecting 500,000 apartments across the country with faster broadband.

The plan, which would compete directly with the NBN rollout to 12 million homes and businesses, takes advantage of a loophole in the ‘cherry-picking’ policy introduced under the former Labor government and aimed at stopping other companies from competing with NBN Co.

Competitors Telstra and Optus have said they are similarly exploring fibre to the basement rollouts, potentially removing higher value customers which NBN Co needs to earn revenues on the project.

The former Treasury secretary and head of the last major review of the taxation system, Ken Henry, has warned the Abbott government urgently needs a tax and welfare package to head off an imminent budget crisis.

He said the changes would have to encompass all welfare payments, which includes disability support pensions, family tax payments, and employment benefits, because the entire system needed to be fixed.

Dr Henry said he was frustrated by the lack of progress on tax and welfare reform since his wide-ranging review of the taxation system in 2010 and tax reform did not appear to be a political priority.

The majority of recommendations in the Henry tax review were never implemented.

Experts are concerned that expensive welfare entitlements have been added to the budget in recent years and existing payments are too generous, including the age pension, which consumes almost 10 per cent of the federal budget.

"There will be a day of reckoning," Dr Henry told The Australian Financial Review.

He said the Abbott government's long-promised tax white paper – due to begin this year – would have to be "deep and broad" to make the tax system strong enough to sustain government spending.

The government has promised to take any major tax changes, including expanding the goods and services tax, to voters at the next federal election.

The total value of housing finance commitments was flat at the start of the year, with the number of loans granted at a seasonally adjusted 51,054. Analysts had expected it to rise by 0.5 per cent, ABS figures released this morning showed.

Meanwhile, despite recent disquiet about housing affordability and the influence of foreign investors on the local market, first home buyer activity made a slight comeback in January from last year's record lows.

The proportion of first home buyers edged up slightly to 13.2 per cent in January, above November's record low of 12.3 per cent, the ABS reported.

In January last year, first-home buyers made up 15 per cent of the amount of all dwellings financed.

At the same time, the figures showed that housing finance continued to be driven by investors and upgraders as low interest rates boost the residential property sector.

"Record numbers of cleared auctions and solid gains in home prices all point to further growth in finance commitments and housing credit in 2014," ANZ's property analysts said.

"NSW is leading other states in housing finance growth by a considerable margin, reflecting the heat experienced in the Sydney home sales market."